Choose one commercial bank and one saving institution of your own choice. Search
ID: 2382408 • Letter: C
Question
Choose one commercial bank and one saving institution of your own choice. Search for their balance sheet and income statement. Compare their balance sheet structure and using Dupont analysis to compare their profitability, operating efficiency, and financial leverage. Write a summary report based on your findings.
PLEASE DO NOT USE GOOGLE. DESCRIBE YOUR OWN WORDS. THANK YOU
Useful links:
You an obtain financial information on Yahoo Finance: http://finance.yahoo.com/
You can find the complete list of saving institutions stocks trading on NASDAQ at: http://topforeignstocks.com/stock-lists/the-complete-list-of-savings-institutions-stocks-trading-on-nasdaq/
Explanation / Answer
Du Pont Analysis is breaking Return on equity into three parts based on profitability, financial leverage and asset turnover.Basic Formula can be represnted as follows-:
ROE = (Profit margin)*(Asset turnover)*(Equity multiplier) = (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)= (Net Profit/Equity)
Let us take a Commercial Bank (State bank of bikaner and jaipur) and a saving institution (HF financial Corp)
Each department have following ratios-
Ratios
ROE = 12.86 6.50
Summary Report -
SBBJ is generating sales while maintaining a lower cost of goods as evidenced by its higher profit margin. SBBJ is having a difficult time turning over large amounts of sales.
HFFC business, on the other hand, is selling products at a smaller margin.You can see this from its low profit margin and lower asset turnover.
This model helps investors compare similar companies like these with similar ratios. Investorscan then apply perceived risks with each company's business model.
Ratios
SBBJ HFFC Profit Margin 7.8% 12% Asset turnover Ratio 9.7% 4.32% Equity Multiplier/ financial leverage 17.01 12.54